GOOD and BAD Biotechs: One year later (part III)

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I now turn to my GOOD biotech predictions of December 2008. In this blog post, this one, and also this one I attempted to identify small biotech companies which I thought had the greatest chance of stock appreciation within a year. Amusingly enough, I hesitated to choose GOOD biotechs because of the severe weakness in the sector. What I should have been doing is buying every one of these stocks in sight, especially in March, because a monkey with a dartboard would have made monster bucks in baby biotech.

The GOOD

Onyx Pharmaceuticals (ONXX) – GOOD at 30. Since my call Onyx had a short term rise to 36 (Yay), declined to 23 (Boo), shot back up to 36 (Yay), down to 25 (Boo), and now back to the starting point at 30.37. Seasick yet? Onyx has changed a lot since I recommended them. They’ve been profitable for the last three quarters on increasing Nexavar revenues, although it’s unclear how much growth remains in that product. They acquired privately-held Proteolix with combined dilutive and debt financings and thereby widened their pipeline which is good, unless it’s bad. I’m not continuing to recommend Onyx at this price, although I would give them a serious look under 25 without negative catalysts. My grade on the prediction? C.

The Medicines Company (MDCO) – GOOD at 13. Well, not really. Just about all the news was bad this year. The worst was the failure of Cangrelor in phase III trials, followed by weak sales of Cleviprex. The acquisition of Targanta and oritavancin likewise appears to have been a mistake, as the FDA and EMEA appear to be fed up to the gills with new antibiotics. The recent acquisition of the Pfizer discard ApoA-1 Milano (is it a drug or a cookie?) seems like a desperation move designed to maintain the illusion of a pipeline. The only bright spot has been increasing Angiomax revenue, which has kept Medicines stock above 1. The company failed in their attempts for a patent extension, and is now surviving on nuisance lawsuits against the inevitable Angiomax generics. How long? Who knows. But when the first generic hits the market, we know where this stock is going. Flush. And I get a D.

CV Therapeutics (CVTX) – GOOD at 9.1. Easy one. Bought out by Gilead for 20 three months after my call. Grade A.

Ligand Pharmaceuticals (LGND) – GOOD at 2.6. Ligand just can’t seem to take off. After trading in the high 2’s in the first half of the year the stock staggered back down as low as 1.66. Ligand really should be doing better than they are, with a track record of multiple successes with their farmed out approved drugs Fablyn, Promacta, and now Conbriza. Unfortunately revenues don’t appear to be improving much and it is extremely difficult to figure out Ligand’s compensation on sales of those drugs. Ligand has been expanding their pipeline through the cheap acquisitions of poorly-managed, failed biotechs such as Pharmacopeia and Neurogen. I still think they have a lot of future potential and as the stock flirts with 2 again, I would strongly consider buying below 1.8. But in terms of my call a year ago, the best grade I can give myself is a C.

Viropharma (VPHM) – GOOD at 12.9. My grade here depends on whether I get credit for recommending a buy only after Marabivir phase III data. The failed trial dumped the share price immediately by half and eventually by two thirds, completely disproportionate given the ongoing Vancocin revenues and the potential of Cinryze. If you waited, you could have had a double. But the share price still hasn’t come anywhere near back to the level I liked them at. Grade C.

Myriad Genetics (MYGN) – GOOD at 31. Myriad appears to me to be doing as well as could be expected financially given the prevailing economic climate. Apparently, high expectations were priced into the stock at 31 as an earnings warning in July was met with a resounding plunge in share price. The company has continued doing what it does best, and I believe they’re very well poised for a rebound. If you watch my pitches, you’ll see that I recently made some money off a bottom at 22.46. But in terms of my prediction, grade C at best.

Genomic Health (GHDX) – GOOD at 19.7. The share price dipped but has wavered back to the level I picked them at. Again, I’m surprised given that Oncotype DX revenues have increased and the company has plans to expand the test to colon cancer this year. I’ll be giving them a closer look in upcoming days. For the quick 30% gain, I’ll give myself a C.

For those of you who have asked my advice on biotechs since I recently started blogging again, I present my report card:

BAD: A,A,D,C,C,C,B,A,B,F

GOOD: C,D,A,C,C,C,C

Maybe good enough to get into a state school. If I could play basketball at the Division II level. And those are my own grades. My critics might not be so generous. I’m not really feeling qualified to give out stock tips based on that record. Instead, I’m going to lay out a somewhat modified strategy for baby biotech investing that has actually been making me some money over the last few months. But that’s going to have to wait until next time. My impatients await.

Ligand Pharmaceuticals (LGND) – GOOD at 2.6. Ligand just can’t seem to take off. After trading in the high 2’s in the first half of the year the stock staggered back down as low as 1.66. Ligand really should be doing better than they are, with a track record of multiple successes with their farmed out approved drugs Fablyn, Promacta, and now Conbriza. Unfortunately revenues don’t appear to be improving much and it is extremely difficult to figure out Ligand’s compensation on sales of those drugs. Ligand has been expanding their pipeline through the cheap acquisitions of poorly-managed, failed biotechs such as Pharmacopeia and Neurogen. I still think they have a lot of future potential and as the stock flirts with 2 again, I would strongly consider buying below 1.8. But in terms of my call a year ago, the best grade I can give myself is a C. I am thinking about making a LARGE share purchase at about $1.67.... What do you think ? TS

Not a bad idea. I have a limit buy in AllStarPortfolio set for 1.6 and will likely buy 5000 myself if 1.6 is breached again. I cannot figure out why Ligand has remained so persistently undervalued given all logical metrics.